The Philippine Budget Cycle

Four phases comprise the Philippine budget process, specifically: (1) Budget Preparation; (2) Budget Legislation; (3) Budget Execution; and (4) Accountability. Each phase is distinctly separate from the others but they overlap in the implementation of the budget during the budget year. Budget Preparation (

The budget preparation phase is commenced through the issuance of a Budget Call by the Department of Budget and Management (DBM). The Budget Call contains budget parameters earlier set by the Development Budget Coordination Committee (DBCC) as well as policy guidelines and procedures to aid government agencies in the preparation and submission of their budget proposals. The Budget Call is of two kinds, namely: (1) a National Budget Call, which is addressed to all agencies, including state universities and colleges; and (2) a Corporate Budget Call, which is addressed to all government-owned and -controlled corporations (GOCCs) and government financial institutions (GFIs). (G.R. No. 209287, July 01, 2014)

Following the issuance of the Budget Call, the various departments and agencies submit their respective Agency Budget Proposals to the DBM. To boost citizen participation, the current administration has tasked the various departments and agencies to partner with civil society organizations and other citizen-stakeholders in the preparation of the Agency Budget Proposals, which proposals are then presented before a technical panel of the DBM in scheduled budget hearings wherein the various departments and agencies are given the opportunity to defend their budget proposals. DBM bureaus thereafter review the Agency Budget Proposals and come up with recommendations for the Executive Review Board, comprised by the DBM Secretary and the DBM’s senior officials. The discussions of the Executive Review Board cover the prioritization of programs and their corresponding support vis-à-vis the priority agenda of the National Government, and their implementation.
The DBM next consolidates the recommended agency budgets into the National Expenditure Program (NEP) and a Budget of Expenditures and Sources of Financing (BESF). The NEP provides the details of spending for each department and agency by program, activity or project (PAP), and is submitted in the form of a proposed GAA.

The Details of Selected Programs and Projects is the more detailed disaggregation of key PAPs in the NEP, especially those in line with the National Government’s development plan. The Staffing Summary provides the staffing complement of each department and agency, including the number of positions and amounts allocated.

The NEP and BESF are thereafter presented by the DBM and the DBCC to the President and the Cabinet for further refinements or re-prioritization. Once the NEP and the BESF are approved by the President and the Cabinet, the DBM prepares the budget documents for submission to Congress. The budget documents consist of: (1) the President’s Budget Message, through which the President explains the policy framework and budget priorities; (2) the BESF, mandated by Section 22, Article VII of the Constitution, which contains the macroeconomic assumptions, public sector context, breakdown of the expenditures and funding sources for the fiscal year and the two previous years; and (3) the NEP. (G.R. No. 209287, July 01, 2014)

"Section 22. The President shall submit to the Congress, within thirty days from the opening of every regular session as the basis of the general appropriations bill, a budget of expenditures and sources of financing, including receipts from existing and proposed revenue measures."

Public or government expenditures are generally classified into two categories, specifically: (1) capital expenditures or outlays; and (2) current operating expenditures. Capital expenditures are the expenses whose usefulness lasts for more than one year, and which add to the assets of the Government, including investments in the capital of government-owned or controlled corporations and their subsidiaries. Current operating expenditures are the purchases of goods and services in current consumption the benefit of which does not extend beyond the fiscal year. The two components of current expenditures are those for personal services (PS), and those for maintenance and other operating expenses (MOOE). (G.R. No. 209287, July 01, 2014)

Section 2(e), P.D. No. 1177 states that capital expenditures "refer to appropriations for the purchase of goods and services, the benefits of which extend beyond the fiscal year and which add to the assets of Government, including investments in the capital of government-owned or controlled corporations and their subsidiaries."

Section 2(d), PD 1177 defines current operating expenditures as "appropriations for the purchase of goods and services for current consumption or within the fiscal year, including the acquisition of furniture and equipment normally used in the conduct of government operations, and for temporary construction of promotional, research and similar purposes."

Public expenditures are also broadly grouped according to their functions into: (1) economic development expenditures (i.e., expenditures on agriculture and natural resources, transportation and communications, commerce and industry, and other economic development efforts);  (2) social services or social development expenditures (i.e., government outlay on education, public health and medicare, labor and welfare and others); (3) general government or general public services expenditures (i.e., expenditures for the general government, legislative services, the administration of justice, and for pensions and gratuities); (4) national defense expenditures (i.e., sub-divided into national security expenditures and expenditures for the maintenance of peace and order); and (5) public debt. (Manasan, Rosario G., Public Finance in the Philippines: A Review of the Literature, Philippine Institute for Development Studies Working Paper 81-03, March 1981)

Public expenditures may further be classified according to the nature of funds, i.e., general fund, special fund or bond fund. (Magtolis-Briones, Leonor, Philippine Public Fiscal Administration, National Research Council of the Philippines and Commission on Audit, 1983, p. 243.)

On the other hand, public revenues complement public expenditures and cover all income or receipts of the government treasury used to support government expenditures. (G.R. No. 209287, July 01, 2014)

Classical economist Adam Smith categorized public revenues based on two principal sources, stating: “The revenue which must defray…the necessary expenses of government may be drawn either, first from some fund which peculiarly belongs to the sovereign or commonwealth, and which is independent of the revenue of the people, or, secondly, from the revenue of the people.” Adam Smith’s classification relied on the two aspects of the nature of the State: first, the State as a juristic person with an artificial personality, and, second, the State as a sovereign or entity possessing supreme power. Under the first aspect, the State could hold property and engage in trade, thereby deriving what is called its quasi-private income or revenues, and which “peculiarly belonged to the sovereign.” Under the second aspect, the State could collect by imposing charges on the revenues of its subjects in the form of taxes. ((Banzon Abello, Amelia, Pattern of Philippine Public Expenditures and Revenue, UP Institute of Economic Development and Research, p. 2, 1962)

Prof. Charles Bastable, a political economist, proposed a similar classification of public revenues in Public Finance (3rd Edition (1917), Book II, Chapter I(2), London: McMillan and Co., Ltd.), to wit:
"The widest division of public revenue is into (1) that obtained by the State in its various functions as a great corporation or "juristic person," operating under the ordinary conditions that govern individuals or private companies, and (2) that taken from the revenues of the society by the power of the sovereign. To the former class belong the rents received by the State as landlord, rent charges due to it, interest on capital lent by it, the earnings of its various employments, whether these cover the expenses of the particular function or not, and finally the accrual of property by escheat or absence of a visible owner. Under the second class have to be placed taxes, either general or special, and finally all extra returns obtained by state industrial agencies through the privileges granted by them."
In the Philippines, public revenues are generally derived from the following sources, to wit: (1) tax revenues (i.e., compulsory contributions to finance government activities); (2) capital revenues (i.e., proceeds from sales of fixed capital assets or scrap thereof and public domain, and gains on such sales like sale of public lands, buildings and other structures, equipment, and other properties recorded as fixed assets); (3) grants (i.e., voluntary contributions and aids given to the Government for its operation on specific purposes in the form of money and/or materials, and do not require any monetary commitment on the part of the recipient); (4) extra-ordinary income (i.e., repayment of loans and advances made by government corporations and local governments and the receipts and shares in income of the Banko Sentral ng Pilipinas, and other receipts); and (5) public borrowings (i.e., proceeds of repayable obligations generally with interest from domestic and foreign creditors of the Government in general, including the National Government and its political subdivisions). (Magtolis-Briones, Leonor, Philippine Public Fiscal Administration, National Research Council of the Philippines and Commission on Audit, 1983, p. 243.)

More specifically, public revenues are classified as follows: (Manual on the New Government Accounting System, Accounting Policies, Volume I, Chapter 1, Section 17. For National Government Agencies)

General Income Specific Income
  1. Subsidy Income from National Government
  2. Subsidy from Central Office
  3. Subsidy from Regional Office/Staff Bureaus
  4. Income from Government Services
  5. Income from Government Business Operations
  6. Sales Revenue
  7. Rent Income
  8. Insurance Income
  9. Dividend Income
  10. Interest Income
  11. Sale of Confiscated Goods and Properties
  12. Foreign Exchange (FOREX) Gains
  13. Miscellaneous Operating and Service Income
  14. Fines and Penalties-Government Services and Business Operations
  15. Income from Grants and Donations
  1. Income Taxes
  2. Property Taxes
  3. Taxes on Goods and Services
  4. Taxes on International Trade and Transactions
  5. Other Taxes Fines and Penalties-Tax Revenue
  6. Other Specific Income

Budget Legislation (

The Budget Legislation Phase covers the period commencing from the time Congress receives the President’s Budget, which is inclusive of the NEP and the BESF, up to the President’s approval of the GAA. This phase is also known as the Budget Authorization Phase, and involves the significant participation of the Legislative through its deliberations. (G.R. No. 209287, July 01, 2014)

Initially, the President’s Budget is assigned to the House of Representatives’ Appropriations Committee on First Reading. The Appropriations Committee and its various Sub-Committees schedule and conduct budget hearings to examine the PAPs of the departments and agencies. Thereafter, the House of Representatives drafts the General Appropriations Bill (GAB). (G.R. No. 209287, July 01, 2014)

Article VI of the 1987 Constitution provides: "Section 24. All appropriation, revenue or tariff bills, bills authorizing increase of the public debt, bills of local application, and private bills shall originate exclusively in the House of Representatives, but the Senate may propose or concur with amendments."

The GAB is sponsored, presented and defended by the House of Representatives’ Appropriations Committee and Sub-Committees in plenary session. As with other laws, the GAB is approved on Third Reading before the House of Representatives’ version is transmitted to the Senate.

Section 26, Article VI of the 1987 Constitution, to wit: "Section 26. 1. Every bill passed by the Congress shall embrace only one subject which shall be expressed in the title thereof. 2. No bill passed by either House shall become a law unless it has passed three readings on separate days, and printed copies thereof in its final form have been distributed to its Members three days before its passage, except when the President certifies to the necessity of its immediate enactment to meet a public calamity or emergency. Upon the last reading of a bill, no amendment thereto shall be allowed, and the vote thereon shall be taken immediately thereafter, and the yeas and nays entered in the Journal."

After transmission, the Senate conducts its own committee hearings on the GAB. To expedite proceedings, the Senate may conduct its committee hearings simultaneously with the House of Representatives’ deliberations. The Senate’s Finance Committee and its Sub-Committees may submit the proposed amendments to the GAB to the plenary of the Senate only after the House of Representatives has formally transmitted its version to the Senate. The Senate version of the GAB is likewise approved on Third Reading. (Section 26, Article VI of the 1987 Constitution)

The House of Representatives and the Senate then constitute a panel each to sit in the Bicameral Conference Committee for the purpose of discussing and harmonizing the conflicting provisions of their versions of the GAB. The “harmonized” version of the GAB is next presented to the President for approval. The President reviews the GAB, and prepares the Veto Message where budget items are subjected to direct veto, or are identified for conditional implementation. (G.R. No. 209287, July 01, 2014)

Section 27,1, Article VI of the 1987 Constitution, viz: "Section 27. 1. Every bill passed by the Congress shall, before it becomes a law, be presented to the President. If he approves the same he shall sign it; otherwise, he shall veto it and return the same with his objections to the House where it originated, which shall enter the objections at large in its Journal and proceed to reconsider it. If, after such reconsideration, two-thirds of all the Members of such House shall agree to pass the bill, it shall be sent, together with the objections, to the other House by which it shall likewise be reconsidered, and if approved by two-thirds of all the Members of that House, it shall become a law. In all such cases, the votes of each House shall be determined by yeas or nays, and the names of the Members voting for or against shall be entered in its Journal. The President shall communicate his veto of any bill to the House where it originated within thirty days after the date of receipt thereof, otherwise, it shall become a law as if he had signed it. 2. The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object."

If, by the end of any fiscal year, the Congress shall have failed to pass the GAB for the ensuing fiscal year, the GAA for the preceding fiscal year shall be deemed re-enacted and shall remain in force and effect until the GAB is passed by the Congress. (Section 25, 7, Article VI of the 1987 Constitution)

Section 25, 7, Article VI of the 1987 Constitution, thus : "xxxx. 7. If, by the end of any fiscal year, the Congress shall have failed to pass the general appropriations bill for the ensuing fiscal year, the general appropriations law for the preceding fiscal year shall be deemed re-enacted and shall remain in force and effect until the general appropriations bill is passed by the Congress."

Budget Execution (

With the GAA now in full force and effect, the next step is the implementation of the budget. The Budget Execution Phase is primarily the function of the DBM, which is tasked to perform the following procedures, namely: (1) to issue the programs and guidelines for the release of funds; (2) to prepare an Allotment and Cash Release Program; (3) to release allotments; and (4) to issue disbursement authorities. (G.R. No. 209287, July 01, 2014)

The implementation of the GAA is directed by the guidelines issued by the DBM. Prior to this, the various departments and agencies are required to submit Budget Execution Documents (BED) to outline their plans and performance targets by laying down the physical and financial plan, the monthly cash program, the estimate of monthly income, and the list of obligations that are not yet due and demandable. (G.R. No. 209287, July 01, 2014)

Thereafter, the DBM prepares an Allotment Release Program (ARP) and a Cash Release Program (CRP). The ARP sets a limit for allotments issued in general and to a specific agency. The CRP fixes the monthly, quarterly and annual disbursement levels. (G.R. No. 209287, July 01, 2014)

Allotments, which authorize an agency to enter into obligations, are issued by the DBM. Allotments are lesser in scope than appropriations, in that the latter embrace the general legislative authority to spendAllotments may be released in two forms – through a comprehensive Agency Budget Matrix (ABM), or, individually, by SARO. (G.R. No. 209287, July 01, 2014)

The ABM disaggregates all programmed appropriations for each agency into two main expenditure categories: "not needing clearance" and "needing clearance"; it is a comprehensive allotment release document for all appropriations that do not need clearance, or those that have already been itemized and fleshed out in the GAA. Items identified as "needing clearance" are those that require the approval of the DBM or the President, as the case may be (for instance, lump sum funds and confidential and intelligence funds). For such items, an agency needs to submit a Special Budget Request to the DBM with supporting documents. Once approved, a SARO is issued. (G.R. No. 209287, July 01, 2014)

Armed with either the ABM or the SARO, agencies become authorized to incur obligations on behalf of the Government in order to implement their PAPs. Obligations may be incurred in various ways, like hiring of personnel, entering into contracts for the supply of goods and services, and using utilities. (G.R. No. 209287, July 01, 2014)

Liabilities legally incurred that the Government will pay for. (G.R. No. 209287, July 1, 2014)

In order to settle the obligations incurred by the agencies, the DBM issues a disbursement authority so that cash may be allocated in payment of the obligations. A cash or disbursement authority that is periodically issued is referred to as a Notice of Cash Allocation (NCA), which issuance is based upon an agency’s submission of its Monthly Cash Program and other required documents. The NCA specifies the maximum amount of cash that can be withdrawn from a government servicing bank for the period indicated. Apart from the NCA, the DBM may issue a Non-Cash Availment Authority (NCAA) to authorize non-cash disbursements, or a Cash Disbursement Ceiling (CDC) for departments with overseas operations to allow the use of income collected by their foreign posts for their operating requirements. (G.R. No. 209287, July 01, 2014)

Belgica v. Executive Secretary: "A SARO, as defined by the DBM itself in its website, is "[a] specific authority issued to identified agencies to incur obligations not exceeding a given amount during a specified period for the purpose indicated. It shall cover expenditures the release of which is subject to compliance with specific laws or regulations, or is subject to separate approval or clearance by competent authority." Based on this definition, it may be gleaned that a SARO only evinces the existence of an obligation and not the directive to pay. Practically speaking, the SARO does not have the direct and immediate effect of placing public funds beyond the control of the disbursing authority. In fact, a SARO may even be withdrawn under certain circumstances which will prevent the actual release of funds. On the other hand, the actual release of funds is brought about by the issuance of the NCA, which is subsequent to the issuance of a SARO."

Actual disbursement or spending of government funds terminates the Budget Execution Phase and is usually accomplished through the Modified Disbursement Scheme under which disbursements chargeable against the National Treasury are coursed through the government servicing banks.

Accountability (

Accountability is a significant phase of the budget cycle because it ensures that the government funds have been effectively and efficiently utilized to achieve the State’s socio-economic goals. It also allows the DBM to assess the performance of agencies during the fiscal year for the purpose of implementing reforms and establishing new policies. (G.R. No. 209287, July 01, 2014)

An agency’s accountability may be examined and evaluated through (1) performance targets and outcomes; (2) budget accountability reports; (3) review of agency performance; and (4) audit conducted by the Commission on Audit (COA). (G.R. No. 209287, July 01, 2014)